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You may hear and see a lot of trendy advice about creating your LLC or corporation in a state where your business is not located, like Delaware, Wyoming, or Nevada. Analyzing the decision about where to form your LLC or corporation is a waste of time for most startup businesses, in my opinion, because the costs and administrative burden of forming an LLC or corporation in one of those other states usually far outweigh any perceived benefits. The simple answer is that you should form your LLC or corporation in the state in which your business is physically located, unless you have a really good reason to form it in another state.
It costs more to form and maintain an LLC or corporation in another state. If you form your LLC or corporation in a state other than where your business is located, you will still need to register or qualify your LLC in your home state, which is an added cost. You will then need to make annual filings and pay annual fees to two states. In addition, you’ll need to engage and pay a registered agent in each state. The other state in which you form might require you to maintain a physical presence in that state. There are services you can hire to act as your physical presence, but that’s another added cost. You may also need to pay taxes in two states. Finally, it may cost a lot of money for you to end your business in another state (e.g., the other state may not automatically terminate your LLC or corporation if you don't pay your annual fees).
If someone is trying to talk you into forming your LLC or corporation in another state, call (757-767-4400) or email (joel@virginiastartups.com) me so I can help you determine if that is really the best approach for your business.